Joseph Stiglitz weighs in on the Federal Reserve

Joseph Stiglitz is one of the greatest economists in the world. He's held professorships at Yale, Stanford, Duke, Princeton and Oxford Universities, and now teaches at Columbia University. He was the chair of the president's Council of Economic Advisors under Clinton. He served as Senior Vice President and Chief Economist at the World Bank from 1997 to 2000. He was awarded the Nobel Prize in Economics in 2001. There should be no disputing that he is eminently qualified in the field of economics, which is all the more reason for you to pay attention to what he says about the Federal Reserve. Speaking at a conference held by the Roosevelt Institute, he said that if a country had come to the World Bank under his tenure seeking aid, while maintaining a financial regulatory system like the Federal Reserve, it would have raised very big alarms:

"If we had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure," Stiglitz said during a conference on financial reform in New York. "It's time for us to reflect on our own structure today, and to say there are parts that can be improved."

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Building lifeboats

I know that my past few posts have been bleak (see here and here), but now I must temper that sense of despair with some hope. Things are bad, and will probably get worse, but that's not to say that they will not get better. But here's the trick: we all have to stop relying upon someone else for solutions. Forgive me if I sound like a politician for just a moment: we must "be the change" we want to see in the world. I cannot tell you how to solve the peak oil problem, or the unfolding economic collapse, or climate change, or the corruption which has become endemic in our political system-- you have to figure it out for yourself. I'm not selling a prepackaged kit which contains all of the answers, and I would probably distrust anyone who was. But that's precisely why I still have hope. If we are going to make it through the challenges facing us, we must learn to pull together again as a community and actually attempt to create our own solutions. There can be no more delegation to those in Washington. We cannot afford to wait for decades as they attempt to muster the political will to combat the flood of money which has so damaged our electoral and political processes. We simply don't have time to fix the system that's been damaged beyond repair.

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“Collapse” goes mainstream

Last week I wrote about a new film, Collapse, and the arrival of Peak Oil as one of the primary factors driving that collapse. Two years ago, daring to speculate about the end of America, or of capitalism itself would have been greeted with a hearty guffaw, or at least some very skeptical glances. Today, these concerns are no longer solely the province of the "doomers"-- there is a blossoming awareness of the gravity of the challenges facing us. Consider these warnings from mainstream, highly credible sources:

  • Secretary of State Hillary Clinton argues that our debt and unprecedented deficits have become a national security issue, not merely a matter of economics. Reuters reported:
    Having to rely on foreign creditors hit "our ability to protect our security, to manage difficult problems and to show the leadership that we deserve," she said. "The moment of reckoning cannot be put off forever," she said. "I really honestly wish I could turn the clock back."

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“The greatest preventable holocaust in the history of planet Earth”

"The greatest preventable holocaust in the history of planet Earth" That's the judgment on what awaits us from Michael Ruppert, in a new documentary entitled "Collapse". The age of fossil fuels has been a blip in the scale of human history. We've only been using them a few centuries, and yet we are unable to remember a time when fossil fuels were not abundant and cheap. That age is now over. Recent experience has taught us that the end of this age was heralded by massive price spikes and has already caused the greatest economic dislocation since the Great Depression, or possibly even including it. Given that the growth of human population has so neatly coincided with the growth in the production of fossil fuels, human population now faces a analogous decline on the far side of the bell curve.

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Why financial reform will never happen

President Obama, 1/29/09:

...when I saw an article today indicating that Wall Street bankers had given themselves $20 billion worth of bonuses -- the same amount of bonuses as they gave themselves in 2004 -- at a time when most of these institutions were teetering on collapse and they are asking for taxpayers to help sustain them, and when taxpayers find themselves in the difficult position that if they don't provide help that the entire system could come down on top of our heads -- that is the height of irresponsibility. It is shameful.
President Obama, 1/14/10:
As we all know, our country has endured the deepest recession we've faced in generations. And much of the turmoil was caused by irresponsibility on the part of banks and financial institutions. Firms took reckless risks in pursuit of short-term profits and soaring bonuses, triggering a financial crisis that nearly pulled the economy into a second Great Depression. ... My commitment is to recover every single dime the American people are owed. And my determination to achieve this goal is only heightened when I see reports of massive profits and obscene bonuses at some of the very firms who owe their continued existence to the American people -- folks who have not been made whole, and who continue to face real hardship in this recession. We want our money back, and we're going to get it. And that's why I'm proposing a Financial Crisis Responsibility Fee to be imposed on major financial firms until the American people are fully compensated for the extraordinary assistance they provided to Wall Street. If these companies are in good enough shape to afford massive bonuses, they are surely in good enough shape to afford paying back every penny to taxpayers.
New York Times, 2/7/10:
Just two years after Mr. Obama helped his party pull in record Wall Street contributions — $89 million from the securities and investment business, according to the nonpartisan Center for Responsive Politics — some of his biggest supporters, like Mr. Dimon, have become the industry’s chief lobbyists against his regulatory agenda. Republicans are rushing to capitalize on what they call Wall Street’s “buyer’s remorse” with the Democrats. And industry executives and lobbyists are warning Democrats that if Mr. Obama keeps attacking Wall Street “fat cats,” they may fight back by withholding their cash. ... Though Wall Street has long been a major source of Democratic campaign money (alongside Hollywood and Silicon Valley), Mr. Obama built unusually direct ties to his contributors there. ... Wall Street lobbyists say the financial industry’s big Democratic donors help ensure that their arguments reach the ears of the president and Congress. White House visitors’ logs show dozens of meetings with big Wall Street fund-raisers, including Gary D. Cohn, a president of Goldman Sachs; Mr. Dimon of JPMorgan Chase; and Robert Wolf, the chief of the American division of the Swiss bank UBS, who has also played golf, had lunch and watched July 4 fireworks with the president.
Bloomberg News, 2/10/10:
President Barack Obama said he doesn’t “begrudge” the $17 million bonus awarded to JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon or the $9 million issued to Goldman Sachs Group Inc. CEO Lloyd Blankfein, noting that some athletes take home more pay. The president, speaking in an interview, said in response to a question that while $17 million is “an extraordinary amount of money” for Main Street, “there are some baseball players who are making more than that and don’t get to the World Series either, so I’m shocked by that as well.” “I know both those guys; they are very savvy businessmen,” Obama said in the interview yesterday in the Oval Office with Bloomberg BusinessWeek, which will appear on newsstands Friday. “I, like most of the American people, don’t begrudge people success or wealth. That is part of the free- market system.” Obama sought to combat perceptions that his administration is anti-business and trumpeted the influence corporate leaders have had on his economic policies. He plans to reiterate that message when he speaks to the Business Roundtable, which represents the heads of many of the biggest U.S. companies, on Feb. 24 in Washington.
Any questions? And are trillion-dollar bailouts for these firms also a part of our "free-market system"?

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